Bristol Myers Squibb (BMY) offered to buy Mirati Therapeutics (MRTX) for up to $5.8 billion, but MRTX shares plunged on Monday at the low price.
The deal values Mirati shares at $58 per share, for a total acquisition price of $4.8 billion. However, MRTX shares closed at 60.20 on Friday. In today’s trading, MRTX shares fell 5.3% to close at 57.02. Bristol’s shares were also slightly lower, ending the regular session at 56.61.
Bristol’s offer includes a contingent value right worth $12 per share of MRTX stock. It will pay this if the FDA accepts an NDA for Mirati’s drug, MRTX1719. The company is testing the drug in patients with a form of lung cancer. That would bring the total value of the deal to $5.8 billion.
On Thursday, a Food and Drug Administration panel said the evidence for Amgen’s (AMGN) lung cancer treatment Lumakras, a rival to a Mirati drug called Krazati, wasn’t enough to support its accelerated approval. Now it’s unclear whether the FDA will allow Amgen to keep Lumakras on the market. On the same day, Bloomberg reported that Sanofi (SNY) was looking to buy Mirati, and MRTX shares jumped more than 45%.
But Leerink Partners analyst Andrew Berens says Bristol’s offer is likely to be too low.
“We believe another bidder could emerge given our view of Mirati’s strategic value and a number of near-term catalysts,” he said in a report. “Even taking into account the CVR, we believe the $64 per share, $5.3 billion offer is significantly below what we believe is the strategic value of the company.”
MRTX stock: A potential blockbuster
Krazati and Lumakras both block a protein produced by the KRAS gene to treat non-small cell lung cancer.
Mirati and Amgen are also testing rival approaches to so-called MTAP-deleted cancers. They are targeting a protein called PRMT5. This group of cancers accounts for about 10% to 15% of all cancers, according to various reports.
Another Leerink analyst, David Risinger, expects Mirati’s drug MRTX1719 to become a blockbuster. But the payout on the contingent value right may have to wait until 2031. Mirati isn’t expected to begin mid-stage testing of MRTX1719 until the first half of 2024. This means that investors in MRTX stock are likely to be looking at the contingent value right at a significant discount.
Risinger notes that the acquisition fits well with Bristol Myers’ oncology franchise.
“We see significant sales prospects for Krazati in lung, colorectal and pancreatic (cancers),” he said. “And we note that there is significant potential for Krazati to gain share from Amgen’s KRAS inhibitor, Lumakras, given the recent regulatory criticism of Lumakras in the US and France.”
Continued interest in targeted oncology
Needham analyst Ami Fadia says the deal deepens Bristol Myers’ efforts in precision oncology. Mirati estimates that there are more than 250,000 patients in the US and Europe whose cancers could be treated by targeting the PRMT5 protein.
This is “one of the biggest targets in precision oncology,” Fadia said in a report.
However, she maintained her “hold” rating on MRTX shares. She notes that other companies – GSK (GSK), Johnson & Johnson (JNJ) and Pfizer (PFE) – have tried to target these cancers. But Mirati, Amgen and a third rival, Tango Therapeutics (TNGX), are trying to extend the time these drugs work.
Recently, Mirati announced that a third of patients with MTAP-deleted cancers responded to treatment with Mirati’s MRTX1719. The trial was early stage and involved just 18 patients. RBC Capital Markets analyst Gregory Renza says the deal broadly underlines Big Pharma’s interest in targeted cancer treatments.
“A small, 18-patient, phase 1 solid tumour dataset worth $1 billion in the form of a CVR for an accepted (new drug application) filing looks intriguing and could help neutralise criticism that the strategic value of targeted oncology assets has diminished over the years,” he said in a note to clients.
